Supplementary Announcement of the Hainan Provincial Taxation Bureau, the Hainan Provincial Department of Finance and the Hainan Provincial Administration for Market Regulation on the Substantive Operation of Enterprises in Encouraged Industries in the Hainan Free Trade Port

Announcement No. 5 of 2022 issued by the State Administration of Taxation, Hainan Provincial Taxation Bureau, Hainan Provincial Department of Finance, and Hainan Provincial Administration for Market Regulation
In order to implement the Overall Plan for the Construction of Hainan Free Trade Port and promote the high-quality development of the construction of Hainan Free Trade Port (hereinafter referred to as the "Free Trade Port"), with the consent of the Hainan Provincial People's Government, the following supplementary announcement is hereby made to the Announcement of the State Administration of Taxation, Hainan Provincial Taxation Bureau, Hainan Provincial Department of Finance, and Hainan Provincial Administration for Market Regulation on Issues Concerning the Substantive Operation of Encouraged Industrial Enterprises in Hainan Free Trade Port (No. 1 of 2021, hereinafter referred to as the "Announcement"):
1. The term "production and operation in the Free Trade Port" as stated in Article 2 of the "Announcement" means that an enterprise has a fixed production and operation site and necessary production and operation equipment and facilities in the Free Trade Port, and the main production and operation site is in the Free Trade Port, or an institution that implements substantial and comprehensive management and control of production and operation is in the Free Trade Port; relevant contracts are concluded in the name of the enterprise.
2. The term "personnel in the Free Trade Port" as stated in Article 2 of the Announcement means that the enterprise has employees who meet the production and operation needs and actually work in the Free Trade Port, and the employees' wages and salaries are paid through the bank account opened by the enterprise in the Free Trade Port; according to the scale of the enterprise and the number of employees, at least 3 (inclusive) to 30 (inclusive) employees must live in the Free Trade Port for a total of 183 days in a tax year.
3. The term "accounts in the Free Trade Port" as stated in Article 2 of the Announcement means that the accounting documents, accounting books, financial statements and other accounting archives of the enterprise are stored in the Free Trade Port, and the basic deposit account and the bank account for the settlement of the main business are opened in the Free Trade Port.
4. Any of the following circumstances shall be deemed to be inconsistent with substantive operation:
(i) It does not have the function of production and operation, and only undertakes the functions of financial settlement, tax declaration, invoice issuance, etc. for mainland business; (ii) The registered address is inconsistent with the actual business address, and it is impossible to contact or the actual business address cannot be provided after contact.
5. For high-end and scarce talents who enjoy the preferential personal income tax policy of the free trade port as stipulated in the "Interim Measures for the Management of the List of High-end and Shortage Talents Enjoying Personal Income Tax Preferential Policies in Hainan Free Trade Port" (issued by Hainan Government [2022] No. 31), the substantive operation of the enterprises or units they serve, are employed, or operate shall refer to the provisions of this announcement.
6. The substantive operation of enterprises enjoying the preferential corporate income tax policy of the encouraged industries of the free trade port shall be managed in the manner of "self-determination, declaration and commitment, and post-verification". Enterprises shall make commitments on substantive operations during the annual settlement and fill in the "Substantive Operation Self-Assessment Commitment Form". Enterprises shall be responsible for the authenticity, accuracy, and completeness of tax declaration materials and related supporting materials.
7. The Provincial Taxation Bureau, the Provincial Department of Finance, the Provincial Market Supervision Administration and other departments shall jointly establish a joint verification mechanism for substantive operations (hereinafter referred to as the "Joint Working Mechanism"). The joint working mechanism and the competent tax authorities shall implement "full coverage" verification of enterprises newly added in the current year that enjoy the preferential corporate income tax policies for industries encouraged by the free trade port and enterprises or units of high-end and scarce talents that enjoy the preferential personal income tax policies of the free trade port; spot checks shall be conducted on existing enterprises or units according to a certain proportion.
8. If there is a dispute over the determination of the substantive operation of an enterprise, the Provincial Market Supervision Administration shall take the lead and jointly with the Provincial Department of Finance, Provincial Taxation Bureau and other departments to establish a dispute coordination and resolution mechanism to study and determine it.
9. This announcement shall be implemented from January 1, 2023 to December 31, 2024.
This announcement is hereby made.

State Administration of Taxation Hainan Provincial Taxation Bureau Hainan Provincial Department of Finance Hainan Provincial Market Supervision Administration
September 27, 2022